CFA Society Singapore
SINGAPORE (April 26): CIMB expects Parkway Life REIT earnings to remain one of the most resilient in the SREIT space, with its deflation-protected Singapore revenue and long-term lease structure in Japan.
In addition, it expects the remaining asset disposal gains of $3.95 million to be paid out in equal instalments over the next three quarters.
With the terming out of its loans due in FY18, PREIT also does not have any refinancing needs till FY19 and balance sheet remains strong with gearing at 37.6%.
In 1Q17, PREIT posted a 0.2% uptick in gross revenue to $26.9 million from a year ago while distribution income came in 9.6% higher y-o-y at $19.84 million, thanks to earnings from acquisitions made in 2016, a stronger yen, interest savings and $1.35 million capital distribution from asset divestments.
In addition, there was one month of contributions from new acquisitions it made in Feb 2017. This was partly offset by income vacuum from the sale of four properties in Japan.
DPU of 3.28 cents accounts for 23% of CIMB’s FY17 forecast.
Singapore contributed 62.5% of NPI in 1Q17. NPI from Singapore hospitals rose 0.6% y-o-y to $15.6 million, thanks to higher income from Gleneagles while income from Mount Elizabeth Hospital and Parkway East remained stable.
Japan NPI saw a marginal 1% y-o-y dip to $9.4 million due to loss of income from the four properties it sold in Dec 2016 for $48.9 million or at a 6.1% yield. This was partly offset by around one month of new income of about $0.4 million from the $59.5 million worth of new properties purchased in Feb 2017. CIMB expects contributions from Japan to pick up in the coming quarters with the impact of a full-quarter’s income from these new assets.
“We raise our DPU estimates by 1.4-5.5% for FY17-19F to reflect the capital distribution from divestment gains and additional income from new purchases,” says analyst Lock Mun Yee in a Tuesday report who is maintaining its “add” call and adjusting CIMB’s DDM-based target price to $2.71 to factor in the higher income and a lower Singapore discount rate.
Units of PREIT are trading at $2.60.